Morning Report

September 19, 2023

“In a quiet start to the week, currency movements have been rather muted, ahead of the significant volatility likely to be induced by the central bank risk events that begin tomorrow.”

Sam Cornford, Partner – Head of Trading


Main Headlines

US Secretary of State Antony Blinken held a meeting with Chinese Vice President Han Zheng on Monday during the United Nations General Assembly, part of a series of discussions aimed at easing tensions between the world’s two largest economies. In a statement released after the meeting, the US State Department characterised the talks as “a candid and constructive discussion.” These discussions between Blinken and Han could pave the way for a meeting between US President Joe Biden and Chinese President Xi Jinping later this year.

Nearly half of small businesses in Britain are feeling the pinch from the increased cost of borrowing, as revealed in a survey released on Monday. This comes ahead of the anticipated 15th consecutive interest rate hike by the Bank of England later this week. The British Chambers of Commerce reported that 46% of the surveyed firms stated that the prior rate increases were negatively affecting them, while 45% indicated no direct impact. Shevaun Haviland, the director general of the lobbying group, noted that the burden of higher debt costs was hindering business investment. “The Bank of England has indicated rates are nearing their peak,” she said. “Businesses need clarity and certainty this week that an end to the cost-of-borrowing pressures are really on the horizon.”


Sterling movement is steady this morning in another quiet day, with CPI inflation and the Bank of England meeting in focus. The Pound has been the worst performing currency in the G10 in the past month, mainly as a result of a slew of dovish comments coming from the BoE, as well as fears of a soon-to-be-reached terminal rate. UK CPI and PPI inflation tomorrow will be closely watched in the lead up to the policy decision on Thursday, with the headline CPI figure expected to reverse its decline and tick upwards from 6.8% to 7.1% due to increasing fuel prices. UK inflation remain the highest out of all the world’s major advanced economies.


The Euro is trading slightly weaker this morning after it received a lift yesterday in response to hints that the ECB may raise the reserve requirement ratio. ECB policymakers have begun discussing how to soak up a large pool of excess liquidity created during pandemic stimulus, with raising the reserve requirements for banks a possible option. This would increase the amount that banks would be required to hold in non-interest-bearing reserves, and therefore tighten credit conditions further, potentially raising yields and boosting the common currency. The Euro hit a record high against the Swedish crown yesterday, as the Krona continues its plunge in response to lowered global risk appetite and property sector woes.


The Dollar is trading within a tight range as markets consolidate positions in one last calm day before the central bank decisions begin tomorrow. The continuing oil rally has buoyed the Dollar in recent days both due to the US’ position as a net oil exporter, and stoked fears of stagnating disinflation. Today, the US releases property sector indicators in the form building permits and housing starts data. In neighbouring Canada, CPI inflation data is due this afternoon, which is expected to spike to 3.8% from a previous print of 3.3% and may spur some volatility in USD/CAD if an upside surprise puts another hike on the table for the BoC.


Oil prices surged to a 10-month high, extending a strong rally that could reignite concerns about inflation. This surge was driven by supply cuts from the OPEC+ alliance, and Saudi Arabia’s energy minister signalled no intention to change course. In Asian markets, shares declined on Tuesday due to concerns about the Chinese property sector, impacting markets from Hong Kong to Australia. Additionally, Japanese investors, returning from an extended weekend, sold off chip stocks, leading to a more than 1% drop in Japan’s Nikkei share average, particularly affecting chip and AI-related shares. Meanwhile, benchmark US Treasury yields remained close to 16-year highs, and US stock futures indicated a 0.1% decline.

Main Economic Data/Central Banks/Government (All Times CET)

11:00 a.m.: Euro-area Aug. CPI
11:00 a.m.: OECD publishes Economic Outlook
11:00 a.m.: UK sells gilts
12:00 p.m.: Israel 2Q GDP
2:30 p.m.: US Aug. Housing Starts, Building Permits
2:30 p.m.: ECB’s Elderson speaks
FOMC starts its two-day meeting
78th UN General Assembly begins
Bloomberg Future of Finance conference in Frankfurt
Bloomberg summit on intelligent automation in London
Markets closed in India

Corporate Events

Earnings include Kingfisher, Hargreaves Lansdown, AutoZone, Endava


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